Asia: Markets extend losses on fears of escalating trade war

[HONG KONG] Asian markets sank on Thursday on mounting trade war fears after the US warned it was looking at more than doubling threatened tariffs on a range of Chinese imports.

Shanghai and Hong Kong led losses after Donald Trump's Trade Representative Robert Lighthizer confirmed earlier reports that the White House was considering hiking levies to 25 per cent from the announced 10 per cent on US$200 billion of Chinese goods.

"We have been very clear about the specific changes China should undertake. Regrettably, instead of changing its harmful behaviour, China has illegally retaliated against US workers, farmers, ranchers and businesses," Mr Lighthizer said.

His statement comes after separate reports said the two sides were looking to restart talks to avert a trade war between the world's top two economies that could hammer global growth.

In response to earlier reports that the US was considering the move, Chinese foreign ministry spokesman Geng Shuang warned Wednesday that "blackmail and pressure from the US side will never work on China".

The latest developments come as Washington considers imposing tariffs on US$16 billion of goods in the coming weeks, having already targeted imports worth US$34 billion last month.

INVESTORS 'WARY'

Investors are left guessing about how the crisis will play out, with some worrying that with both sides digging in there could be more pain down the line, but others saying Mr Trump is playing tough as a negotiating tactic.

"Markets are now wary of the next step in the trade war between the US and China," Nick Twidale, chief operating officer at Rakuten Securities Australia, said in a note.

"With the US threatening to increase tariffs to 25 per cent from 10 per cent and the Chinese vowing not to react to 'blackmail' to get them back to the negotiating table, this could be the catalyst that tips sentiment and some markets into a tailspin to the downside, especially as we enter the lower liquidity holiday trading season."

In morning trade, Shanghai lost 1.4 per cent and Hong Kong gave up 1.2 per cent, while Seoul gave up 0.7 per cent.

Tokyo was 0.4 per cent off by the break and Sydney slipped 0.3 per cent. Seoul fell 0.7 per cent and Taipei shed 0.8 per cent while Singapore was barely moved.

On currency markets, the pound was virtually unchanged against the dollar ahead of a Bank of England policy meeting at which it is expected to lift interest rates to their highest level for nine years as it looks to fend off rising inflation.

But the dollar weakened against the yen despite the Federal Reserve on Wednesday indicating it would hike borrowing costs next month, with the Japanese unit supported by the central bank's lighter touch to monetary policy.

Oil prices rebounded slightly after falling sharply Wednesday in response to a jump in US crude stockpiles and reports that output by Opec and Russia increased in July.

AFP